Friday, September 05, 2014

Now that we have your attention with that
admittedly provocative title, we are going to kill two birds with one stone
here.

Bird One is the fact that we haven’t
posted anything in two months, mainly because whatever odd silliness visible in the darker corners of Wall Street seems irrelevant in a world where
Vladimir Putin can invade his neighbors, take territory and shoot passenger planes from the sky while the
civilized world sputters about such things not being fit for 21st
Century-type behavior before moving onto actual 21st Century-type behavior like Tweeting about how sad it is that Joan Rivers died.

Bird Two is something I’ve always
wondered about when it comes to Berkshire Hathaway.

But before getting to that, let me repeat, for the record and as I have said early and often in books, speeches and as a talking head, that Berkshire Hathaway is the
product of the single best 49 ½-year investment track record that anyone in our
lifetimes will likely ever witness, bar none.

Now, I have met a lot of conspiracy theorists since writing “Secrets in Plain Sight” who claim that Warren Buffett is
either a) just plain lucky (“he was born at the right time”), or b) not really all that great
(“you could have done better with a leveraged bond fund,” e.g.), or c) a beneficiary of his left-wing political connections (“the Keystone Pipeline isn’t being approved because it
would hurt Berkshire’s railroad”), or d) just such a lousy rotten hypocrite that who
cares what his track record is?

But none of them (or anybody else, for that matter) has ever, never, not once brought up the actual fact that Berkshire Hathaway is, as best anybody can tell, the largest
cigarette dealer in the United States (outside of the tobacco companies
themselves), thanks to its ownership of McLane Company, the giant wholesaler that Buffett acquired
from Wal-Mart in 2003.

The precise extent to which Berkshire Hathaway
shareholders (your editor included) benefit from supplying smokes to addicts
around the world (McLane has operations in other countries as well as the U.S.) are hard to
come by, but, big picture, we know that a) McLane is the largest
distributor of smokes, gum, candy and food to convenience stores in America,
and that b) convenience stores are the largest source of smokes to cigarette addicts in
America, which would mean Berkshire Hathaway owns what is very likely the biggest wholesaler of smokes (not to mention the kind of chewing tobacco that recently killed Padres great Tony Gwynn) in America.

And despite all the efforts of government and regulators to end it, the tobacco business remains a very big business indeed.

In fact, a press
release on the McLane web site (copped from something called “Convenience Stores Decisions”) notes that
$52 billion worth of cigarettes were sold at convenience stores in 2012,
amounting to 8.75 billion smokes.

And while both figures were down slightly from the previous year according to the same report, its authors noted approvingly that “visits to the
c-store [convenience-store] by tobacco customers remains [sic] strong, and that
provides a steady opportunity to boost the market basket.”

So the next time people flip out about Warren
Buffett making a perfectly rational decision to invest Berkshire’s money in a
highly profitable tax-inversion deal despite his long-standing opposition to
the use of tax-aversion strategies by others (as they did a couple of weeks ago during the Burger King-for-Tim Horton hysteria), ask them whether it’s really
as bad as making money wholesaling a highly addictive, cancer-causing, birth-defect-causing and emphysema-causing product by the billions to people who really can’t afford it to begin with?

And the next time you run into one of Berkshire’s “comfortably numb”
shareholders—to cop an old Pink Floyd label—ask them when are they going to stop doing it?

Jeff Matthews

Author “Secrets in Plain
Sight: Business and Investing Secrets of Warren Buffett”

The
content contained in this blog represents only the opinions of Mr.
Matthews.Mr. Matthews also acts as an
advisor and clients advised by Mr. Matthews may hold either long or short
positions in securities of various companies discussed in the blog based upon
Mr. Matthews’ recommendations.This
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